What the Heck is Happening with the Metals? I interviewed David Morgan about the Smashing of Metals and People's Emotional Investment of it.

I questioned/interviewed David Morgan of Silver-Investor.com and The Morgan Report on May 15th 2012.

This is not your "normal" metals interview - it is about the emotional value people put into the investments of metals and how the bankers are working on the psychological part to stop people from investing in metals.

 Metals have been an emotional investment to people over the last few years and the bankers are playing the game like the show Survivor, in how it is "Outlast, Outplay, Outwit" against investors of the metals.






 Transcript:

Sherrie:                       This is Sherrie Questioning All, and right now I am questioning what the heck is happening with the metals in the way of them being smashed.  And I have the pleasure and honor of having David Morgan of Silver-Investor.com, and author of the Morgan Report with me to answer some of these questions.  Hi David, you there?

                                    I want to tell you thank you so much for talking to me about what’s going on in the metals and what you think is happening right now.

David Morgan:           Well it’s my pleasure, and we’ll state the facts first.  One, a lot of my contemporaries have been pretty bullish here the last few months, and I’ve been somewhat bearish.  I’ve been telling our members and also the public domain, because I do a lot of interviews as you know, that I felt that the metals had some more work to do probably sideways to down.  And I was telling the members that I thought the $28.00 level would be about it.  I also thought that the $1550 level for gold would probably be about it. 

                                    And that’s basically where we are today.  We’re under the $28.00 level.  I also cautioned everybody that the worst case I could see so far would be this “$26 and change” I call it “and change” because it’s not $26.00 on silver; it’s had spiked lows down there twice, and in both cases it’s been very strong buying for a very short period of time and the metal shot right back up. 

Sherrie:                       Yeah but today I saw silver did touch $26.68 briefly, and now it’s back up above $27.00.  It’s at $27.15 right now, so what do you – you think we’re really at the bottom here?

David Morgan:           I think we are within a month or so.  I’ve been calling a June bottom.  What normally happens in these major bull markets is the shares lead the metal, and I know I’m going to get some flak for making that statement.  And I use the word “usually,” but what takes place is the mining equities usually bottom before the metals bottom.  And then they also usually peak before the metals peak.  That’s not always the case.  We are getting really creamed in the mining shares.  I mean it’s the worst it’s been in 31 years, so the shares are very underpriced relative to what their true value is, and again the metals are getting hit. 

                                    So I think the shares are really very close to a bottom here.  Almost every indicator you want to use indicates that they are at a bottom or very close to a bottom.  So very safe to buy in this range.  And the metals, of course, maybe have some more work to do.  But as you outlined we’ve already been at $26.68 and it’s bounced back up.  And what happens in those levels is that you see strong buying at that low; it’s all computer paper buying for the most part.  And then the price shoots back up.  So I’ll stick my neck out and say I think this is probably as close to the bottom as we’re going to get.  It could go lower; we probably have another month perhaps.  But with all that’s going on geo politically it’s really counterintuitive to see these kind of sell offs in the metals.

Sherrie:                       Well that’s what – okay you know what I really love about – I’m a subscriber to your report.  And I really love about it is that I am not – I don’t have a degree in finance, and basically 99 percent of the people are like me.  And so I like how you write the plain, simple where I can understand what’s going on.  But here’s my questions to you right now, to me it almost – when you were talking about counterintuitive, it just doesn’t make sense.  And the understanding of what’s happening, especially with the fact that the first quarter even the Japanese retirement fund, which has never bought gold before, has been buying gold.  Soros, Pimco, a Texas teacher retirement fund.  I mean the list goes on about the acquiring of gold in the first quarter. 

                                    Yet gold has been going down, and it’s almost – and tell me if I’m right, and again it’s that simple mind that I kind of equate it to the show Survivor, outwit, outlast and outplay.  And that seems like the psychological thing that’s going on that the banks are doing right now with metals.  I mean is that kind of a good analogy?

David Morgan:           I agree.  I might say it slightly different, but you’re right.  The fundamental facts are that there’s probably more interest in the gold now than there’s been in a very long time.  And so it would appear that the price should be going higher from all the fundamental facts and the tensions in the economic environment.  I mean with the Euro basically blowing apart or very close to that.  All the stress that’s going on with the debt loads and everything else we talk about constantly and yet here they are.  Well I, as you know Sherrie, was at the money show in Las Vegas; it’s actually going on today as we’re doing this interview.  I was there for two days not the entire four, and Bill Murphy was speaking at that event as well as myself.

                                    And Bill pointed out how often gold does the opposite of what you’d expect, and this is a very big case in point.  His idea, and I tend to agree with it, is that were gold to reflect all that’s going on in the economic environment, the political system and making new highs right now as logic would dictate it would.  It would feed on itself.  In other words, the psychology is the most important thing that can be controlled by the paper markets.  And the psychology right now is “Why isn’t gold going up?”  So massive amounts of paper gold and silver are being sold through the systems in the futures markets to keep the psychology puzzled. 

                                    Because the Johnny come lately on the street that may be following the gold market in a very cursory way, a very small way, pays attention every once in a while is looking at the Euro perhaps and what’s going on in the mainstream press and saying to himself or herself “Why in the heck isn’t gold going up?  It’s been going down like 11 days in a row or 10 out of the last 12.”  And so that fortifies their belief system that “Oh well gold can’t be a good investment.  Gold should be going up right now and it’s not.  Oh I’m not going to buy gold.”  And this is exactly the manipulation, not only in the price structure but in the mindset.  And this is something –

Sherrie:                       Right.

David Morgan:           That I commend you on Sherrie, because really this is an area that quite honestly I don’t remember ever being interviewed on.  But that’s the idea.  I’m going to drill on a little bit longer if you allow me, but I was in this movie called “The Four Horsemen”.  And they had 23 thinkers across the globe that talked basically about all the economic/political problems that the world faces and solutions to those problems.  And I forget the lady’s name, but she was in my view quite intelligent, and she talked about the control mechanism and she called it the “cognitive map.”  In other words how we think, and she said “That’s what it’s based on, the cognitive map.”  It’s how the controllers, the media if you will as a word that covers the whole basis.  “If the media controls your thinking they’ve got ya.”  And again, this is what I think is going on.

Sherrie:                       Well see that’s – from my talking to people, and that’s why I did want to do this interview with you.  There’s so many people over the last three years that have believed in the metals.  And what I find interesting is that even last year I believe about mid-point, Citigroup even came out and said “Oh by the end of 2011 gold will be at $2,000.00.”  We were hearing gold’s going to be at $2,000.00 at the end of 2011.  And it’s almost as if a setup for people to buy in it, buy in to it at $1,600.00 or $1,700.00 and then it just gets smashed.  And psychologically those that have believed in gold and silver are now almost giving up on it.  I mean are you finding that, that they’re really getting in to the psyche of people and is that the purpose of it?

David Morgan:           Well I think it is the purpose of it, and I also think yes, they are certainly getting in to some people.  I mean this money show I just returned from I was with one of the pretty large size retail bullion dealer.  And they’re selling quite a bit at these low levels, but they’re also getting sell backs.  There’s a fair amount of people that are – you know they’ve had it.  And some are selling at a loss and some are selling at a profit.  All markets go up and down; the metals are no exception.  But the problem with the metals is this, what we’re talking about, this psychological aspect because people think in terms of dollars regardless of what they should be thinking in, and I’ll explain that.

                                    By definition if real money, gold and silver are true wealth, and they are and they have been for thousands of years.  And you accumulate more coins in any given year, by definition you are wealthier.  But that’s not how people think.  The way they think is “I bought it at $35.00 and now it’s at $28.00 and I’ve lost money.”  Well I won’t lie and say you haven’t lost “money” if you need to cash out and pay a bill or make a purchase of some type. 

                                    But in reality if you have more silver, more gold or more of both over any time frame you are, again by definition wealthier.  So that’s something that most people can’t even grasp thinking wise.  They might think about it intellectually and say “Oh that makes sense.”  But when it comes to the reality of “What is the price on a given day?” and especially when you have these long consolidations like we’re witnessing where it’s been hitting highs.  I mean it’s a year and a couple of weeks.  I mean you go back in to last year, silver was hitting the $48.00 level at the very end of April; now we’re in mid-May 2012.  I’ll bet if you did a survey from the time silver hit $35.00 and moved all the way up to $48.00 with ever silver bug you could find and ask them “Do you think you’ll see silver under $30.00 in the next year or two?”  And I’ll bet you 98 percent of them would say “No, will never happen.”  Well –

Sherrie:                       Right.

David Morgan:           Here we are.

Sherrie:                       Right, right, yeah.  I mean silver was last year towards the end of last year, it was – of the futures reports, of the charts that I would look at it was highest increase of any commodity of value.  And now this year if you’re looking at the chart, in one years’ time it’s minus 20 percent in the way of value from it was a year ago.  And it just seems like – yet am I correct in saying the actual – I mean there’s enough information out there about silver, and there’s a great article saying it’s the most important metal in the world. 

                                    Silver is used in almost every electronic product, in our light switches; it’s a very important metal.  And let’s see, in the Patriot missiles it’s 16 pounds of it.  Silver’s not recycled like gold.  And I mean and from all that I’ve read, and correct me – we’ve used almost all the above ground in U.S. and Canada and yet we have China and India which are upcoming economies that estimated to use twice as much.  So the supplies – am I correct in saying the supplies really aren’t out there?  And this whole manipulation of prices even may be causing the supplies to go faster?

David Morgan:           Well a couple corrections.  One is silver is recycled; there’s a lot of applications where it cannot be recycled or it’s uneconomic to recycle it.  But the round numbers, depending on which study you look at, there’s probably 200,000,000 ounces of silver recycled in any given year.

Sherrie:                       Okay.

David Morgan:           I don’t know if I believe that totally or not, but there is a great deal.  I mean for example the public is, in my view is dumbed down generally speaking.  And there’s a lot of these “Cash for Gold” places all over the place.

Sherrie:                       Right.

David Morgan:           And so what people don’t really realize in this cash for gold is a lot of people are turning in the gold they don’t want, the mismatched earrings, or the necklace, or the bracelet or the ring or whatever.  But they’ve never stopped to consider that 14 karat, 16 karat, 18 karat; 22 karat gold is always mixed with silver.  And so there’s a lot of silver that comes through this gold buying apparatus.  That’s one thing.

Sherrie:                       Ah.

David Morgan:           The other thing is there is still some –

Sherrie:                       And they’re not getting paid on that silver; they’re only getting paid on the gold part.

David Morgan:           Right, but they do that – they do it to their advantage.

Sherrie:                       Hmm.

David Morgan:           I mean basically most of those places you’re lucky to get 30 percent on a dollar.

Sherrie:                       Right.

David Morgan:           I mean if you melted it down yourself and weighed it at a coin dealer, you would be getting substantially more money.  So you could say yeah, they’re not getting paid for the silver.  But they’re not getting a fair price in any event.

Sherrie:                       Right.

David Morgan:           The other thing was supply.  Supply was in a deficit from 1990 through, and including 2006.  And around 2006 or ’07, depending again which study, either CPM Group or the Silver Institute’s study, said and I tend to agree, that the overall mining supply of silver was greater than total demand.  And I think that’s borne out by the facts.  The facts are that the above ground bullion supply at probably 2003, ’04, ’05 was around 500 million ounces, maybe even less.  And today we know we have a billion ounces. 

                                    So it’s doubled over the last 5 years, and the reason being is mine production has increased substantially over the last 10 years.  There’s been a huge increase in the commodities boom.  It’s not just the metals, it’s the base metals, it’s energy, it’s food, it’s lumber, you name it.  China’s been on this huge build out program for the last decade; they have demanded all kinds of raw materials, which means commodities.  And there’s been this big push to increase production of all commodities.  Well silver’s a byproduct of base metal mining primarily; only about 25-30 percent of the silver is mined out of primary silver mines.

                                    So copper, for example, provides 25 percent of the world’s silver supply.  Lead and zinc combined allow for 35 percent of the silver supply.  So just those two alone are 60 percent of the silver supply.  Actually about 13 percent of the silver supply comes as a result of gold mining.  So all these commodities that have been sought after so strongly has increased the amount of silver. 

                                    So because of that there has been a increase, not only in the amount of silver coming above ground, but the amount that is actually needed or demanded by the markets.  So there’s been enough silver to fill total demand, which means investment and industrial demands.  But the stockpiles, if you want to call them that, have actually increased over the last five years or so.

Sherrie:                       Okay well then that I did not realize.  I thought the supply and demand that the demand was almost outstripping all the supply over the last few years.  Huh, okay.  Well what do you think –

David Morgan:           Well let me interject there for a minute ‘cause first of all everything I said, I hope I was very clear.  Supply and demand always meet every year regardless of what anyone tells you.  Now the reason that you get a higher price is because someone’s willing to pay more for something that they have a higher demand for.  Gold has got a great amount of supply above ground, but the price keeps going up because – well it’s down now.  But it was generally up over the last 11 years because there is higher and higher demand at a given price. 

                                    So all I’m trying to state is that it’s not like there’s this big surplus of silver sitting there; there’s silver supplies very tightly held.  Roughly half and half; half investment and half industrial applications.  You got to factor in jewelry and silverware and that stuff as well.  But the supply above ground that’s excess, in other words it’s no one wants for either investment or industrial purposes, is very, very, very small, if any.  I mean basically for my work there isn’t any.  So the above ground supply isn’t something to focus on too much.  I just want to be very factual about the silver market.

Sherrie:                       Right.

David Morgan:           But it’s the demand, and now the reason you’re able to buy junk bags and bars and all the stuff is people are giving up.  The psychology –

Sherrie:                       Right.

David Morgan:           What this interview’s mainly about goes something like… “Oh boy I wish I never bought silver.  I bought it at $35.00; it’s $28.00.  I don’t want to lose any more money.  I’m going to sell it.”  Or another very good example is someone that bought it early, that bought it at $15.00 and watched it go to $48.00.  “Oh my goodness, I bought it at $15.00; I could have tripled my money.  I could have sold it at $45.00 and then I could have sold it at $30.00 and doubled my money.  And now it’s under that.  I’m sick of silver; I’m selling it now.”  So you’ve got those basic two, there’s of course a plethora of different case studies.  But those are the two main ones.

Sherrie:                       Right.

David Morgan:           So you get supply into the market based on, as we’re talking, psychology only.

Sherrie:                       Right and what do you think – I mean especially with the political, with Greece possibly – you know that whole back and forth of leaving the Euro, not leaving Euro, the whole Euro dropping.  The new __________ in France who’s talking about joining the _________, being a partner with them.  The whole political scene that’s happening around the world, besides the _______ currencies I would like to know – I mean to me, and I know there’s strength actually in the metals.  It is the game, the outwit, outlast, outplay right now in my opinion that they’re playing.  Where do you think this year with everything happening, even with them playing their games, where do you think silver is going in value of price by the end of the year?

David Morgan:           Great question.  Earlier in the year – to be consistent ‘cause there’s people that follow almost every interview I do, and that’s their right to do so.  Earlier in the year I thought we could probably see $60.00 silver by the end of the year.  I have since modified that based on more current events.  I still think $40.00 is possible, and I want to give a caveat about $40.00.  Once we get above $40.00 if it’s on big volume, in other words the market’s extremely strong going through $40.00 and it stays there for oh 3 days minimum, and a week or 2 is more what I like to see. 

                                    It could launch from $40.00 to $50.00 to $60.00 quite rapidly.  And the reason for that is technical work but it’s very simple to understand.  It’s just silver above the $40 level basically has no overhead resistance.  In other words, there’s nothing more bullish for any market than a new high.  Now I realize $40.00 isn’t a new high, but it’s close enough that there’ll be a lot of strong hands by that time holding whatever silver’s available.  And any new buying people get excited on price moving up.  They don’t get excited when price is moving down.  They do the opposite, again with the psychology that you should; you should be looking at today’s prices as an opportunity or a gift to either add to your position or start a position. 

                                    But unfortunately a lot of people will say “Well I’ll wait till it goes lower.”  Well what if today is the low?  You waited too long, but then it’ll start back up and they won’t get on board.  Again, that’s a psychological game that you just have to overcome.  I mean most things in life that you do well in require discipline, and the discipline of a good investor is that you don’t really care about an exact price.  What you care about is “Am I buying relatively in the weakness and am I selling relatively in the strength?”  It’s that short term, intermediate term or even long term.  That’s the attitude you have to have.  To have the “I’ll pick the low” or “I’ll sell the highs,” an amateur’s attitude is not a professionals’.

Sherrie:                       Well with selling – all right with buying the low, and one thing I have noticed which is interesting, not that the silver bugs, the gold bugs per se that have been watching it very closely for the last few years.  But one thing that recently I’ve noticed is those that have stayed outside of it, have not believed in it interesting enough I’ve had some people recently that are close to me that are saying, you know that are in that group saying “Hey, I want to get in to silver now; when do you think the low is going to be?”  It seems to me that it’s almost like a new group might be those that have been frustrated that are giving up, but then those that have never participated before are now saying “Hmm it’s low and I wanna get in to it.”  Are you finding that, that there’s a kind of a new group coming up, coming in to it?

David Morgan:           You’re spot on as they say in London.  You’re exactly right.  Any market that’s what happens is there are some that are stalwarts.  In other words, they bought low like myself and they’re gonna ride this thing out to the very – not to the very, very top but for the – or hopefully for the duration of the entire bull move.  I’m very convinced that we have a few more years at least left, probably five or so if you want a number.  But as you said Sherrie, very correctly, is that the stale longs with people that are selling for whatever reason get out of the market and new buyers come in.  And that takes place in all markets. 

                                    So there’ll probably be more people buying silver above $40.00 than ever bought it below $40.00 believe it or not.  Because the way markets move is price movement causes action, and the people that are looking at it today and saying “Well it’s gonna go lower than $28.00 or $27.00 and change, I’m gonna wait” never really get around to buying it.  Once it gets above $40.00 they’ll catch silver fever, they’ll buy it and it’ll keep pushing the price up and up and up and up. 

                                    And with what’s going on in the world, and I didn’t really – I apologize, I didn’t answer your last question very directly.  Is you’re right, metals are strength.  I mean this is money for 5,000 years; always been there, always done that for multiple societies.  And yet we’re in this global economic fiat game where we’re supposed to think one currency’s stronger than another when the whole thing’s a giant lie.  And so the metals are strength and that’s why we’re seeing what you started the interview with.  China’s increased its gold take by 600 percent in the first quarter. 

                                    You’ve got funds that have never bought gold before buying gold now; Japanese buying gold; people that have never bought gold.  Friends of yours that you’re acquainted with that kind of gave the soft show to the idea of buying precious metals.  They’re now interested in them.  And this is what takes place.  So the new buyers will be there and they’ll be there in great numbers, and that will force the price much higher.  And that’s where I think we’re gonna go.  Now is it gonna happen this year?  I think it could begin by the end of this year, but I really think you’re gonna see the biggest movement in metals probably between 2013 and 2016.

Sherrie:                       Okay I have a question, and it’s a little bit of a trick question here.  If we actually had a free market of metal pricing compared to a manipulated market of metal pricing, what do you think silver would be at?

David Morgan:           I think we’d be probably anywhere between $70.00 and $100.00 at a very minimum.   I mean I base that mostly on gold.  I mean gold should be making new highs here.  I mean gold is more well known, and certainly much more widely held by institutions, hedge funds, rich people, countries, nation states, etc.  So gold to clear all the junk paper and all the bad debt and everything else that’s out there, being extremely conservative would probably be between $3,000.00 and $5,000.00.  So if we just take the $3,000.00 mark and look at what silver’s ratio would be to gold –

Sherrie:                       And right now the ratio is 76 points – I’m sorry, 56.73 –

David Morgan:           Yes.

Sherrie:                       Which is not the norm; should be actually around the 15^th, from historical?

David Morgan:           Yeah, the historic mean price is around the 15 to 1 mark, or I call it the “monetary ratio” or the “classic ratio”.  But even if you used 100 to 1, if you had $3,000.00 ounce gold you would have $30.00 silver.  So you’d have $60.00 silver to 50 to 1 price.  So I think that’s conservative.  When gold really moves, silver goes faster.  So again, I think $70.00 to $100.00 as a minimum.  But I want to give the idea not the the price – I don’t want people to focus on the price too much, ‘because it’s more important to get the concepts. 

                                    Because people get fixated, again, on the price rather than thinking about “How much metal do I have?”  Or if they have more metal now than a year ago. They think about the price rather than thinking about silver will outpace gold, and that it’s got a lot longer to go to clear the market.  They think, again, about price.  So I don’t want to make price the main issue, but it’d be far, far higher, I’d say probably double what it is now as a minimum to be where – if we were in a true free market.

Sherrie:                       Gotcha, well I very much appreciate your time and I would like to thank you and also we’ve talked a lot and we’ve talked about the price.  But basically I know what you’re saying and it’s boiling down to is that even though the psychological what’s been happening of the depressed pricing, yet we’re hearing about all the political and the countries and the currencies going down and all these funds are buying.  And yet the price is going down, and I know it’s affecting people emotionally.  Because even though it is an investment, and we’re supposed to be non-emotional about investments, the metals – the people that have really believed in metals have been very emotionally involved in them over the past few years.  And so the emotional portion of it – of what you were saying, people are selling it, even losing money at this time.  It’s almost like trying to stress that they need to hold on, right?

David Morgan:           Yeah, I mean this is maybe a corny analogy but you know me, I love to use them.  And it’s like a life preserver.  If you had abandoned ship and I threw you a life preserver that was only 60 percent full, it had air in it, it’s probably – it will still save your life.  And that’s where the gold market is right now.  But if that life preserver was blown up fully and it was at a new high, $1,960.00 gold, you’d feel like “Oh gold’s doing its job.  It’s at this price and it’s saving me, saving my financial future.”  Well even if a lot of the air’s been let out a life preserver is still doing its job. 

                                    I think that’s the best analogy I can give you off the top of my head.  Because yeah, it may not be the pristine, wonderful life preserver that you wanted but you know what, it’s still going to do its job.  Same thing with silver, and all I can do is encourage people to try to, I don’t want to say fight their emotions, just acknowledge their emotions but use some logic to balance it out.  Nothing has changed fundamentally that makes it the right thing to sell your metals here; in fact the opposite is true.  The fundamental facts that are taking place in the global economic system and the political – I don’t even know what to call it, that’s such a joke as far as what’s going on.  There are no real leaders anymore; there’s no one telling the truth anymore.  The political system on a global basis is so corrupt.  That there’s more reasons than ever to buy the metal. 

                                    So if you – unless you really have to, I mean I can’t see in everybody’s particular situation and there are probably some cases that they’re using that life preserver.  That was their savings; something important has come up in their lives, that’s all they have.  And if you really think about it, at least they had that.  You know what I mean?

Sherrie:                       Right.

David Morgan:           But if you don’t need to sell, then certainly rethink it before you do.

Sherrie:                       Well especially when people, in the way of thinking back to like Ron Paul said, and I believe what it was when he held up the silver circle coin to Ben Bernanke.  I believe it was 2008, he said that it bought 4 gallons of gasoline; and now today at that time, which was a little over $30.00, it would buy 11 gallons of gasoline.  And so I guess it’s almost where people need to look at that portion and the way of the purchasing power of what it was to what it is.  And that can help their emotional part of it.  But it is, and it’s actually – which is why I really appreciate you talking to me about this, is it – really is an emotional investment to many people who have gotten in to and have watched it closely; and are very disheartened right now with it going down.  But we know the strength and as you said, the strength is there and it’s just outlasting.

David Morgan:           Yes, that’s right.  Just keep your conviction.  Well Sherrie thank you so                                much  offering me the opportunity to do this interview with you.